Years of Poems and Spirits

Prof. Edward Lazear gave a seminar tonight on campus. The subject is President’s upcoming Tax Reform proposal.

Lazear is a Stanford professor and Hoover fellow. He has a loaded bio and a seat on President’s new advisory Tax Reform Panel.

Tax Reform is part of the pro-savings, pro-investment campaign by GWB administration. The rationale, based on my feeble macro-economics understanding, is that consumption is driving up the current account deficit. Also heard arguments as more savings and investments (one and the same) will keep inflation in check and create more jobs. Not sure why capital investments won’t cause material shortage or consumer demand will not create jobs.

Things caught my attentions:
1. Eliminate AMT
2. Reduce number of examptions (healthcare, mortgage rate, etc.) Roll them into credits instead.
3. Drastically cut capital gain tax: no tax on dividends, only tax 25% of stock gain, for example.
4. Reduce corporate rate.
5. Allow everyone to open up to 3 tax-deferred accounts: savings, retirement and healthcare (to replace 401K and the likes). A married couple could save A LOT ($60K+) a year.
6. There are two reform proposals: one is called the “Simple” plan, the other the “Progressive”.
7. Not sure the difference between the two. Had the impression that the “Simple” plan will cut 50% of tax filing efforts, and there is a “consumption tax” in the “Progressive”.
8. Each plan includes changes to both personal and corporate tax codes.
9. Supposedly, the effect of such changes is tax revenue neutral and keeps the same tax burden to all tax payers (i.e. the poor vs. the rich) as today.

My impressions:
1. This is a very complicated set of changes. Again, I have to confess my lack of domain knowledge. But I am not convinced by his repeated assurances that they are simple and straightfoward.
2. Lazear has a very sharp mind and commanding knowledge. There is no a hint of hesitation in any of his answers. He constantly assured the audience that most economists or experts agreed with him on this and that.
3. I don’t trust this proposal: the salesman too slick and the arguments underwhelming. Here is why:
a. In a zero-sum game (revenue neutral), how can one pro something without taking away something else from others? It may be so in the short run as the economy is absorbing the changes. In the long run, there has to be winners and loosers.
b. One of the changes is called “border adjustment” which taxes import (for consumption) and gives credit to export as if they offset each other through currence exchange. To me they are just new names for tariff and subsides! I asked him whether WTO may find this troublesome, he admitted as much but still said it was “negotiateable”. After the conversation, I really have doubts of his idea of “fairness”.

Book Review: International Relations in Southeast Asia, by Donald E. Weatherbee, at el.

Weatherbee’s book is an in-depth study of international relations in Southeast Asia. The discussions on “neorealist” subjects in the book resemble those in Yahuda’s book, but with greatly enriched materials. However, it is the “nontraditional” topics, such as terrorism, cross-border crimes, environmental and human rights, that really give the book a fresh new look.
Like Michael Yahuda, Weatherbee identifies Southeast Asia with strong sentiment of regionalism. However, in his criticism of the “neoliberalist” rationale (p18), he laid a theoretical foundation questioning the validity of such sentiment. In his view, the diversities among Southeast Asian countries are so profound that they become “potent divisive, not unifying, forces” (p15). As a result, he argues, regional identity is weak and a far less significant factor in understanding Southeast Asian politics (p15).

Since ASEAN has been the symbol of Southeast Asian regionalism, its institutional persona, or lack thereof, is extensively discussed throughout the book. According to Weatherbee:
1. As an international institution, ASEAN lacks any substantial power or authority.
2. ASEAN was ineffective in solving intra-regional conflicts. So much so that some members bypassed it altogether when settling bilateral issues (p131).
3. As an organization, ASEAN is massively bureaucratic and inefficient.

Those deficiencies, Weatherbee points out, are signs that member countries lack political will to sacrifice for the collective good. The paucity of such will reflects the absence of shared values, which in turn is a legacy of the diversities in the region. ASEAN, he argues, has never been an “organic” institution. It was conceived, created and imposed upon international conscience by the ruling elites.
Weatherbee’s views on individual Southeast Asian countries are similarly critical. In his portrait, many governments’ dealings with their neighbors are as unilateral and bullying as some (reciprocally protested) U.S. policies. In addition, Southeast Asian countries’ tolerance toward human rights abuse, epitomized by the prospect of a Myanmar chairmanship, is deeply troubling to the author .

Given the current state of ASEAN and what it has achieved since its inception, it is hard not to agree with many of Weatherbee’s contentions. Yet, important questions remain: The first and foremost is, if the bounding of member nations is so weak and the organization so dysfunctional, then what keeps ASEAN live and running today? After all, the organization has been recently expanded and, despite having its former oppressor, Indonesia, sitting at the head of the table, East Timor is still trying to join in.

To answer this question, one has to bring in some perspective in evaluating “regional identity” or “regionalism”. Despite their cultural proximity, Northeast Asia is nowhere near to forming a regional organization. In other regions where there are comparable institutions, such as Arab League, African Union or OAS, the state-institution dynamics are not categorically different from those in Southeast Asia. The authors may implicitly hold EU and NATO as models for regional (plus one) cooperation. This is arguably true but not without exceptions: given the legacy of NATO alliance, disputes like the one between Turkey and Cyprus still have to be mediated by outsiders. More prominently, the collective inaptitude during the early Balkan conflict exposed serious limitations of EC and NATO. Weatherbee questioned whether expanding ASEAN by including Indochina countries was necessarily a good thing (p91). Now similar question is being asked inside European Union too, if not with more salient uncertainty.

In the end, one may have to ask if there is really a Platonic “regionalism”? In other words, is Southeast Asian brand of regionalism an exception or the rule? The authors have built a convincing case against using ASEAN as a fully representative model for regional study. But in their drive to achieve this goal, they may have inadvertently discounted the inherent difficulties of any international cooperation.